Investors begin rallying around T-Mobile/MetroPCS merger

Following Deutsche Telekom's improved offer for MetroPCS (NYSE:PCS) shareholders earlier this week, investors in the regional, flat-rate carrier are beginning to voice their support for the combination of T-Mobile USA and MetroPCS. Specifically, MetroPCS's largest shareholder, Paulson & Co., said it now supports the transaction.

"While Paulson needs to review the revised proxy statement before making a final decision, Paulson intends to vote for the merger as restructured," said Paulson & Co., which owns 9.9 percent of Metro shares, according to Bloomberg.

P. Schoenfeld Asset Management, the other major Metro investor that opposed the original transaction, said it is reviewing DT's new offer.

DT Wednesday issued its "best and final offer" that slashes the amount of debt the combined company will hold by $3.8 billion. DT also said it will lower the interest rate it plans to charge on the loan by half a percentage point. The new offer would cut the loans to $11.2 billion, from $15 billion. The revised offer addresses many of the concerns that MetroPCS shareholders had about the deal--specifically that the combined company would take on too much debt.

A MetroPCS shareholder vote on the transaction was scheduled for today but has been delayed until April 24 to allow voters to evaluate DT's new offer. Federal regulators have already approved the deal, and the last remaining obstacle to the closing of the transaction is approval by MetroPCS shareholders.

Now that the merger of T-Mobile and MetroPCS appears a virtual certainty, industry observers are beginning to consider what the future of a combined T-Mobile and MetroPCS looks like. In arguing for the transaction, T-Mobile has said that it will take MetroPCS' prepaid brand and offerings nationwide. T-Mobile has also said it will use MetroPCS' spectrum to improve its burgeoning LTE network, which is currently live in seven markets. T-Mobile plans to expand its LTE network to 200 million POPs by the end of this year, and with MetroPCS' spectrum T-Mobile has promised to deliver 2X20 MHz LTE services in 90 percent of the top 25 U.S. markets.

"Now that T-Mobile settled its issues with MetroPCS shareholders it can focus squarely on tomorrow's iPhone launch and more broadly on marketing its Un-carrier strategy," wrote BTIG analyst Walter Piecyk. "Network investments, cheap phones and discount rate plans are a good start but T-Mobile needs to get the message out and that will require a pick-up in marketing."

Indeed, T-Mobile today started selling the iPhone 5, and is pushing the gadget with a major marketing campaign (click here for that story).

Piecyk said BTIG expects T-Mobile to grow gross additions by 25 percent in the second quarter to 1 million, which he said would represent a slight sequential increase in a quarter that typically is down sequentially.

In preliminary subscriber figures for the first quarter of 2013, T-Mobile managed to reverse its "branded customer" losses, recording a net gain of 3,000 branded customers during the period.

For more:
- see this BTIG post (reg. req.)
- see this Wall Street Journal article (sub. req.)
- see this Bloomberg article
- see this MarketWatch article

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